A machine used to shread cardboard boxes for composting has a first cost of $10,000, an AOC of $7000 per year, a 3-year life, and no appreciable salvage value. Assume you were told that the service provided by the machine will be needed for only 5 years, which entails a repurchase and retention for only 2 years.What salvage value, S, is required after 2 years in order to make the 2-year AW value the same as it is for its 3-year life cycle AW? Assume i = 10% per year. Solve using factors and, if assigned, using a spreadsheet and Goal Seek.
A machine used to shread cardboard boxes for composting has a first cost of $10,000, an AOC of $7000 per year, a 3-year life, and no appreciable salvage value. Assume you were told that the service provided by the machine will be needed for only 5 years, which entails a repurchase and retention for only 2 years.What salvage value, S, is required after 2 years in order to make the 2-year AW value the same as it is for its 3-year life cycle AW? Assume i = 10% per year. Solve using factors and, if assigned, using a spreadsheet and Goal Seek.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
A machine used to shread cardboard boxes for
composting has a first cost of $10,000, an AOC
of $7000 per year, a 3-year life, and no appreciable
salvage value. Assume you were told that the
service provided by the machine will be needed
for only 5 years, which entails a repurchase and
retention for only 2 years.What salvage value, S,
is required after 2 years in order to make the
2-year AW value the same as it is for its 3-year
life cycle AW? Assume i = 10% per year. Solve
using factors and, if assigned, using a spreadsheet
and Goal Seek.
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